Monetary Policy

The money multiplier equals

1/reserve requirment

we often simply call the federal reserve system the ________, whereas the _______ us used as an abbreviation for federal bureau of investigation (FBI) officers or for agents

Fed, Feds

Monetary policy refers to the action of the ______ reserve to influence the supply of money and credit in the U.S economy

Federal

A formal market for overnight loans of federal reserves is the:

Federal funds market

The market for borrowing and lending reserves between banks is the:

Federal funds market

On of the Keys interest rates in the economy is called the:

Federal funds rate

The interest rate that helps determine the interest rates charged on other loans called

Federal funds rate

Banks can create money by making use of:

Fractional reserve banking

When aggregate demand rises too much, to decrease aggregate demand we can use ______ monetary policy

contractionary

With fractional reserve banking

Banks have to keep a fraction of deposits on hand

______ monetary policy is sometimes referred to as "tight money'

Contractionary

A decrease in aggregate demand will cause the price level to _______ and unemployment to _____ in the short run.

Decrease, Rise

The money multipler will equal 1/rr as long as:

-banks loan out all their excess reserves -people can't hold any loaned money as cash

In the real world, the actual money multiplier tends to be smaller than 1/rr because

-people hold some loaned money as cash, -banks do not loans out of excess their reserves.

______ demand describes the overall, or total, demand for all final goods and services produced in an economy

Aggregate

______ reserves the amount the bank can lend out to earn interest equal _______ reserve minus ________ reserve.

Excess, total, required

______ monetary policy is sometimes referred to as easy money

Expansionary

The federal funds is the interest rates that banks pays when borrowing reserves from other ________

Banks

A ______ is a financial instrument that obligates a borrower to repay money, with interest, to a lender.

Bond

Banks can expand reserves, and make more loans by:

Borrowing from the federal reserve Attracting deposits and encouraging savings

In countering inflation:

Contractionary monetary policy can raise interest rates, decrease gross investment and depress aggregate demand

The interest rate at which banks can borrow money directly from the federal reserve is called the:

Discount rate

______ reserve are equal to total minus required reserve.

Excess

Which of the following will cause investments to fall

Higher interest rates and lower expected returns

Which of the following will cause investments to rise

Improve in frastru

Banks allow households who are spending less than their total income to keep their unused income in a safe place while are also earning ________

Interest

Given the demand for money an _______ in the money supply curve and lowers the interest rate.

Increase

If the federal reserve increase the discount rate there will be ______ borrowing from the federal reserve and banks will ____ lending. this will ______ the money supply and _____ interest rate

Less, Decreases, Decreases, Increases

_____ policy primarily affct the economy by either encouraging or discouraging investment in a new capital

Monetary

______ policy is the accretions of a contry central bank to influence the supply of money and credit in the economy.

Monetary

The _______ market is a market in which the demand for and supply of money determine as interest rate, or opportunity cost of holding money balances

Money

The _______ multiplier is the amount by which a $1 change in reserve will change the money supply

Money

With monetary policy changes in the:

Money supply, the quantity of investment demand and real GDP all move in the same direction.

When conducting monetary policy, the fed most often uses:

Open market operations

A Bank ______ occurs when several banks experience bank runs simultaneously

Panic

_____ reserves are equal to deposits times the reserve requirement

Required

When the Fed ____ bonds, it takes money out of the economy and reduces reserves, which contracts the money supply, causing interest to _____

Sells, Increases

An increase in the money _______ will cause interest rates to fall

Supply

By changing the money ____, the federal reserve can influence real GDP

Supply

Which three values are all related, so that when one changes, so do the others.

The dollar value of deposits held by banks, baks reserve, and the money supply

The federal reserve changes the amount of money in circulation by:

Using open market operations to buy and sell government Debt (U.S treasury Bonds)

When economists talk about interest rates or even the interest rate they mean:

all interest rates since interest rate all tend to move in the same direction.

When the federal government borrows money, it issues three different assets:

bonds notes and bills

Loans created from ______ reserved expands the money supply by creating excess reserve in the banking system.

borrowed

The federal funs rate is determined by the supply and demand for _______ reserve.

borrowed

The federal funds rate is one of the "key" interest rate in the economy because:

by changing the federal funds rate the fed can change every other interest rate in an economy, it represents the interest rate for the least ricky loans in the market.

to increase gross investment, the interest rate must_______

decrease

all else equals, when the money supply ______ interest rates decreases

increases

if an economy is experiencing _____ inflation an increase in interest rate will reduce consumption and investment and will cool the economy

demand-pull inflation

the reserve requirement is the minimum % of _____ that banks must keep on hand

deposits

______ reserve held as currency earn no interest

excess

When the aggregate demand falls, to increase aggregate demand we cause use ______ monetary policy

expansionary

in countering recession

expansionary monetary policy can lower interest rates, increase gross investments and increase aggregate demand

The supply curve for federal funds is ___

flat

since 2009, the avg interest rate in saving accounts;

has decreased

at _____ interest rates the opportunit can cost of borrowing funds rises so banks will be less willing to borrow reserves

high

Which of the following will cause investments to rise

higher expected returns, improved infrastructure.

Which of the following will cause consumption to fall

higher taxes, repayment of loans, deteriorating expectations, falling wealth.

an ______ in aggregate demand will cause the price level to rise and unemployment to fall in the short run.

increase

When the fed ____ the federal funds rate target the money supply decrease and interest rates rise

increases

When aggregate demand rises, to avoid _____ and return to the long run equilibrium we must decrease aggregate demand

inflation

Banks pay their expenses and hope to make a profit by charging _______ on loans

interest

Changing the money supply can affect

interest rate thereby changing investments spending

The interest rate:

is the price of money

When the feds open market committee decides on a target for the federal fund rates:

it commits to buy and sell bonds through open market operations to maintain the target

the ______ the reserve requirement, the smaller the money multiplier

larger

For every dollar of bond the fed buys or sells the money supply will increase or decrease by an amount equal to the:

money multiplier

To minimize the effect of recession the feds most often uses

open market operations.

the cost of keeping more reserves than the fraction required instead of lending out these funs, is the ______ cost of the forgone interest the funds would have earned

opportunity

The _____ requirement is the fraction of checkable deposits that banks must keep on hand as reserve either as currency or on deposit with the federal reserve.

reserve

The fraction of checkable deposits that banks must keep on hand as reserve, either as currency or on deposit with the federal reserve is called the:

reserve requirement

The fraction of checkable deposits that banks must keep on hanf reserve, wither as currency or on deposit with the federal reserve is called the:

reserve requirement

To make sure banks meet the daily needs of customers, the federal reserve enforces a:

reserve requirement

The federal funds rate is determined by the supply and demand for borrowed ________.

reserved

The federal funds market is the market for borrowing and lending _____ between banks

reserves

a "bank ____" occurs when depositors rush in mass to withdraw their funds form a bank

run

when the fed decreases interest rates during tough economic times, it is hoping that investments spending and output in he economy will increase but _____ are negatively affected by this policy.

savers

The _______ is the difference between the interest rate a bank earns in a loans and the interest rate it pays

spread

a bank can find itself short of the reserve requirement at the end of the day and in a need to borrow reserve from another bank. this could happen

the bank allows its account-holders to withdraw their money at the same time.

The money multiplier equals

the overall change in the money supply/ the initial change in reserves

banks don't perfectly hit their reserve requirement lending up to the maximum of their deposits because

they do not control hoe much is deposited or withdrawn in any particular day.

The fed used open market operations;

to keep the federal funds rates on target